Latest News - New Mortgage Rules Could Affect Interims & Freelancers

The Financial Services Authority (FSA) is today expected to announce an end to “self-certification” loans, where borrowers are not required to prove their income.

The FSA’s plan is to toughen rules on mortgage lending and includes a number of different measures which includes bringing an end to self-certification loans. The industry will have until 30 January 2010 to comment on the plans.

This measure will affect all self-employed workers including contractors and freelancers who are looking to take out a mortgage. The FSA want to ensure banks only lend to those who can afford repayments. As many self-employed contractors and freelancers often have varying incomes, self-certified mortgages were usually the preferred choice.

However, these loans made up nearly half of all the mortgages being offered at the peak of the housing boom, but have been at the centre of a number of mortgage fraud inquiries, when incomes were allegedly inflated by rogue brokers looking for higher commissions.

If the ban now comes in, lenders will be able to look at the tax returns of self-employed people – who have often used self-certification loans – for evidence of their income, the FSA said. Income certification typically requires three years of audited accounts, something that will be difficult for recent entrants to the contractor industry to produce.

The Register commented, ‘the proposals on self-cert mortgages would have an immediate effect on contractors, particularly those who have only recently become self-employed – as a result of the financial crisis, for example.’

The Federation of Small Businesses have urged the FSA not to penalise self-employed workers.